The Economic Power of Women’s Empowerment

Christine Lagard
Christine Lagard/World Bank

The great Japanese writer and feminist, Raicho Hiratsuka, once famously wrote: “In the beginning, woman was truly the sun. An authentic person.” Today more than ever, the global economy needs precisely this kind of radiant sun—to provide light and nourishment. To provide healing. To dry out the swamps of poverty and unrest.

The reason is obvious. Seven years into the worst global financial crisis since the Great Depression, the recovery is still too tepid and too turbulent. And even after the crisis abates, we will face grave challenges to growth—as a slower “new normal” sets in, as populations age, and as economic disparities increase.

Given these challenges, we will need all the economic growth, dynamism and ingenuity we can get in the years ahead. Thankfully, a key part of the solution is staring us right in the face—unleashing the economic power of women. Bringing the world’s largest excluded group into the fold.

I would like to talk about three things today:

•First, a bird’s eye view of female economic exclusion today—in Japan and elsewhere.
•Second, how to empower women in the economy across three areas—economic policies, laws and institutions, and societal and business culture.
•Third, what Japan can do to further boost women’s economic empowerment.

Women’s economic exclusion and its costs

Let me start with the landscape of exclusion and why it is so harmful. To some degree or other, women everywhere face barriers to flourishing and achieving their potential. Gender gaps in labor force participation exist all over the world—ranging from 12 percent in the OECD economies to 50 percent in the Middle East and North Africa. Japan is somewhat in the middle—its female participation rate is 65 percent, 20 percentage points lower than males. This is better than the Asia average, but still low for an OECD economy.

Another global reality: when women do participate, they tend to be stuck in low-paying, low-status jobs. Globally, women earn only three-quarters as much as men—this is true even with the same level of education, and in the same occupation. Again, this is an acute issue in Japan, with a gender wage gap of 29 percent—on the high side for an OECD economy.

Women also tend to be overrepresented in less secure jobs—such as informal, temporary, or part-time work. This is partly because they want more flexible work options, and partly because they are locked out of higher-status careers. We can see this clearly in Japan. Many large companies reserve the permanent positions—the coveted sogo shoku—for men, and women flock to lower-paying and less secure jobs—the ippan shoku.

Globally, women also tend to be locked out of leadership positions, where gender seems to matter more than ability. Women make up only 5 percent of Fortune 500 CEOs. They account for only 24 percent of senior management positions around the world—these numbers are fairly consistent across Asia, Europe, Latin America, and North America. In Japan, it is 9 percent.

Clearly, the global economy is not using its productive resources very effectively. It is tossing away economic growth at a time when it cannot afford such wanton waste. This needs to change.

The benefits of greater inclusion are clear—not just for women, but for all of us. For a start, women are the ultimate agents of aggregate demand, accounting for 70 percent of global consumer spending. So if we want growth, let us put women in the driver’s seat. This brings to mind something that the Japanese author Osamu Dazai once said: “the term gender equality means that the status of men is raised to the status of women”!

This might be true, but, in the case of the labor market, we have to start with raising women to the position of men! We know that eliminating gender gaps in labor force participation can lead to big jumps in income per capita. This is true everywhere in the world, but especially in lagging regions like the Middle East and North Africa, and South Asia.What about Japan? Here, we showed that gradually raising female labor force to the average level of the G7 could raise income per capita by 4 percent—permanently. Going even further—to participation levels of Northern Europe—would give Japan a further 4 percent. Overly ambitious—perhaps, for now. But this shows the powerful ripple effect that higher female labor market participation could cause.

We also know from the business side that prejudice does not pay. Companies that are open to women do better than companies that are closed. For example, the Fortune 500 companies with the best records of promoting women have been shown to be 18 to 69 percent more profitable than the median firm in their area.

We can see this in Japan too. As Kathy Matsui has pointed out, Japanese firms with the most women managers reported returns on equity exceeding 10 percent, while the firms with the least women managers had low or negative returns on equity. So excluding women simply makes no economic sense—and including women can be a tremendous boon to the 21st century global economy

Unleashing the economic potential of women

This brings me to my second area—how to unleash the economic power and potential of women. I think there are three main ways to do this—changing economic policies, changing laws and institutions, and changing attitudes and culture. Let me start with economic policies.

Countries can lift up women by adopting more pro-female, pro-family, approaches. Such policies include moving more from family to individual taxation; providing more affordable child-care and parental leave; and allowing for more flexible working arrangements.

We know that these policies can work. We have the evidence. For example, Sweden devotes a full one percent of GDP to childcare and pre-primary spending—more than most other countries (and three times more than Japan). It also takes workplace flexibility very seriously. It is no coincidence that Sweden has one of the highest female participation rates in the world. We can also look at the Netherlands, where female labor participation rose sharply over the past few decades as part-time work was given the same status as full-time work—the same social security coverage, the same employment protection, the same rules. This means that women could have part-time work without part-time rights.

Or take a country like Chile, which saw female labor force participation rise by 20 percentage points over the past quarter century. For sure, a lot of this reflects cultural change, but some of it surely reflects economic policies too—especially the large increase in social spending, including on early childhood education and childcare, and the increase in maternity leave.

And the benefit is clear: when we boost the participation of women, we boost the growth potential of a country.

The second major area affecting women’s empowerment is law and institutions. A research group at the IMF (of women, no less!) is doing some work on this. In a study spanning 100 countries, the preliminary findings are that gender gaps are lower when men and women are treated equally under the law—in terms of inheritance, property, and economic opportunity.

More specifically, what seems to matter most is equal property rights for married women; default joint titling for married couples; and women’s freedom to pursue a profession, get a job, or open a bank account—without prejudice or partiality.

As one example, consider the story of Rwanda, where the legal system guarantees equal rights in terms of land ownership and inheritance, and the constitution enshrines gender equality—with 30 percent quotas for women in leadership positions. Because of this strategy, Rwanda tops the world for women in parliament—53 percent in 2013. And notably, Rwanda has been able to make impressive progress in reducing poverty and inequality.

Think also about Saudi Arabia, where some of the main obstacles to women’s participation are legal and institutional—restrictions on travel and participation in specific sectors of the economy, unequal property and inheritance rights. Encouragingly, Saudi Arabia has started to move forward in some areas, but it could still go further. Morocco and Tunisia, for example, have enshrined gender equality into their new constitutions—although in Tunisia, many women’s’ rights were already in place since independence.

Of course, changing policy cannot fix everything. Changing laws and institutions cannot fix everything. We also need to change attitudes away from a male-dominated culture, to make it more open and receptive to the great contributions offered by women—in society in general, and in business in particular. This means knocking down the outdated obstacles that hold women back.

In part, that means taking diversity seriously—“daring the difference”, as I call it. It means taking a “leap of faith”—in hiring women, promoting women, investing in women. And it means having recourse to strong mentors and role models who can reach out and pull up women up behind them.

We have a great example of this— in Japan. Back in 1968, Fusae Ichikawa—the remarkable leader of the Japanese women’s suffrage movement—paid a visit to a young woman who was busy teaching at a university and raising her two children. She saw great potential in the young woman, and encouraged her to become the first female Japanese delegate to the United Nations General Assembly.

We all know that woman’s name: Sadako Ogata. She rose to become UN High Commissioner for Refugees, and is now regarded as one of the most accomplished global leaders of her generation. Who knows what would have happened if she had not heard that little whisper in her ear all those years ago? Never doubt the power of encouragement, the world-altering potential of women helping women.

To sum it up: we know what it takes to reach a more gender-inclusive global economy. We know the benefit it yields. So let’s do it.

Female economic empowerment in Japan

This takes me to my third area—how Japan can further female empowerment. The issue has particular urgency here. Japan is growing older at a faster rate than anywhere else in the world. Its working age population will fall from a peak of 87 million in the mid-1990s to 55 million by mid-century. As populations age, vitality will diminish, and growth will slow, and it will be hard to maintain current living standards. We expect growth potential of only about 1 percent over the medium term.

There is one obvious option for rescuing Japan from this harsh demographic fate—empowering women. We all know that Japan’s women are among the highest educated and most talented in the world. We all know that they have the ability, the potential, and the desire to contribute even more. Empower them to do so!

I know that the government is working flat-out to level the playing field in the world of work—and I support these efforts completely. Prime Minister Abe and his team have set ambitious targets for empowering women—and I am convinced that they can be met. We think that these measures can really pay off—adding ¼ percent to growth each year if implemented aggressively. This is significant. Yet even so, it falls short of the 1 percent boost to growth that Japan needs for Abenomics to succeed with flying colors. So while women can save Japan, they need help from other structural reforms.

Let me offer some thoughts on how Japan can fulfill its promises in the area of women’s empowerment. An over-riding issue is to provide better incentives on both sides—making employment more attractive to women, and making women more attractive to employers.

Right now, most Japanese women tend to leave work when they have children—and do not come back. Recent evidence suggests that 60 percent of women leave when they have their first child. And after they finish taking care of their children, they start taking care of their elderly parents.

At the same time, companies are often reluctant to hire women, especially in the coveted career positions—the sogo shoku. These jobs are traditionally seen as lasting for a life time, so hiring somebody entails a huge cost for the company. Employers fear that they will not get a return on their investment as women drop out. So they either do not hire women, or hire then in career streams with soft skills and with few opportunities for leadership.

A related issue is that the internal corporate culture often turns off women. Companies demand long hours, insist on face time, and tie pay to seniority rather than merit. There are lots of silos and—let me be candid—lots of exclusive “boys” networks. There is no magic bullet for solving these problems and breaking down this “two-tier” employment structure. It requires changes in public policy complemented by changes in business culture.

Starting with policy: a key impediment is the limited availability of childcare—without which women cannot go back to work. The government is certainly giving this priority, pledging to create 400,000 new spaces by 2018. The situation is getting better. But the government could go even further by cutting away some of the red tape surrounding childcare, and letting more private providers offer their services.

And as women go back to work, who will take care of their children in these childcare centers? Who will take care of their elderly parents in the world’s fastest-aging economy?

One option is skilled immigrants. We all know that Japan is renowned across the world for the kindness and hospitability of its people. If it extends this welcoming spirit by opening its doors and its borders in an appropriate way, then everybody wins. Everybody gets the jobs they need. Everybody gets the care they need. And Japan gets to shape its own demographic destiny.

In terms of other policy areas, Japan could also follow international best practice by removing tax disincentives for women to work, extending parental leave, and better targeting child care allowances toward those who need them most. I know some of these issues are under discussion.

There is a limit, of course, to what the government can accomplish on its own. We also need to address attitudes and culture—especially in the world of business.

In short, business must become more welcoming of women. One obvious step is to make the work environment more flexible. This includes moving away from the ingrained culture of lifetime employment and long working hours, and toward a system based more on output and performance. Businesses could also encourage both men and women to take parental leave. They could take more risks in promoting more women to higher positions, which in turn creates more mentors and role models.

Again, I know that some efforts are underway here, but I believe that there is scope to go further.

One final point here: a new business culture will require a new mentality, a new outlook, for both women and men alike. In this, Japanese men might seek inspiration from Tasogare Seibei—the Twilight Samurai in Shuhei Fujisawa’s famous novel—who ran home in the evening to care for his family, rather than staying out late with his fellow samurai!

The lesson is clear: if we want a strong and bright economic future, then we need strong and bright women to help drive it. That means all strands of society need to embrace inclusion.


Inclusion is a good note on which to offer my conclusion. The history of Japan shows clearly that great things can happen when women are given the chance to shine.

Think of the iron will behind the great women leaders of yore—women like Himiko, the shaman queen; Empress Suiko; and Masako Hojo, the daunting “nun-shogun.” Think about the creative genius of women like Murasaki Shikibu, the author of the literary masterpiece, Tale of Genji; Izumo no Okuni, the founder of the hauntingly beautiful art of kabuki; or Raicho Hiratsuka, the inspirational feminist author. Think about the pioneers of women’s education like Umeko Tsuda and Yaeko Yamamoto; or the great global leaders like Sadako Ogata.

Think of the graceful and talented figure skating champions like Mao Asada, the effervescent young women behind the global cultural phenomenon of J-pop, and even the bold and iconoclastic style of the Harajuku girls! Think of these—and also of the millions of Japanese women today, brimming with talent and potential, just waiting for the chance make their mark and turn their dreams into reality. Let us unlock their doors to success and unblock their avenues of opportunity.

I urge everyone—all women and men of goodwill—to dare the difference and bet on women. I promise you this: you will not be disappointed. For when women shine like the sun, their radiance will be forever undimmed.

By Christine Lagarde
Managing Director, International Monetary Fund.

Culled from the African Executive


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